GOVERNOR PATERSON: Didn't open Pandora's Box.

Governor Paterson backed away from a threat that could have plunged the pension system into chaos when he July 1 signed into law a bill extending a wide variety of retirement-related provisions for another two years.

 

That date also marked, however, a reduction in pension rights for future police officers and firefighters who were placed under Tier 3 of the retirement system, a consequence of his veto a month earlier of a bill that had extended Tier 2 rights to those employees every two years since 1981.

PBA: Will Cost City More

The change spurred an angry statement from the head of the Patrolmen's Benevolent Association that Tier 3 will actually be more costly to the city, although it also requires cops to work longer to qualify for full pensions and reduces certain benefits, including those that surviving spouses receive if they die in the line of duty.

Police union and pension officials expressed relief that Mr. Paterson thought better of torpedoing the "general extender" bill that provides continued special pension coverage for cops, firefighters and their surviving spouses but also entails matters with a much-broader sweep including Tiers 3 and 4 of the system for all state and city employees.

PATRICK J. LYNCH: Tier 3 hurts city as well as cops.

"I think he signed it because he knew the chaos that would have been caused if he didn't," said Lou Matarazzo, the legislative director for the Detectives Endowment Association, the Captains Endowment Association and the Public Employee Conference.

 

Heeded Comptroller's Warning

He noted that State Comptroller Thomas DiNapoli had sent a letter to the Governor warning of the potentially drastic consequences if Tiers 3 and 4 were eliminated. City lawyers were said to be frantically researching what impact the veto might have had on those currently belonging to the two pension tiers, with no definitive answers available prior to the decision being made to approve the general extender bill.

Others believed Mr. Paterson had made the threat strictly as a bargaining tool in his attempt to pressure police and fire union leaders to accept a form of Tier 5 for their future members.

TONY GARVEY: No pension loans under new tier.

The two largest state-employee unions, the Civil Service Employees Association and the Public Employees Federation, in early June agreed to support legislation on the matter, with new workers required to serve until age 62 to qualify for a full pension, under a deal that averted several thousand layoffs of their members. Several weeks later, the United Federation of Teachers agreed to a modified version of the new pension tier but retained the right for its future members to leave service at age 55 with a full pension provided they have worked at least 27 years. (Most current UFT members have that right if they are 55 and have 25 years on the job.)

 

Cops Feel First Impact

Mr. Paterson did not have to take any action to move future cops and firefighters into Tier 3; his veto of the Tier 2 extender bill was enough to trigger the change as of July 1. In the city, its immediate impact will be felt by a class of rookie Police Officers whose induction Mayor Bloomberg postponed July 6; the Fire Department has not yet scheduled a new class of Probationary Firefighters.

PBA President Patrick J. Lynch said in a statement, "In response to editorials calling for pension reform, the city and state have placed police and firefighters in a pension tier that actually costs the city more. Not surprising for Albany."

He did not elaborate, but he was clearly referring to a unique feature of Tier 3 pertaining to cost-of-living adjustments that will treat longerserving cops and firefighters more generously than those who are covered by Tier 2. While some officials share his view on that score, others believe that on the whole, Tier 3's less-generous aspects will provide savings to the city, state and other municipalities.

Serve Longer, Contribute More

Under Tier 3, cops and firefighters will be required to serve 22 years, rather than the traditional 20, in order to qualify for a full pension. It also requires that members contribute a flat 3 percent of salary to the retirement system; current cops and firefighters contribute between .5 and 2.85 percent of their salaries, with the city paying an additional 5 percent on their behalf under what is known as an Increased Take-Home Pay provision for Tier 2.

Tier 3 also does not allow members to borrow against their pensions, a Tier 2 right that Police Pension Fund Executive Director Tony Garvey recently described as "a lifeline for police officers who have an immediate need for money."

The survivors of future cops and firefighters covered under Tier 3 will also receive a less-generous accidental death benefit, although it is difficult to quantify how much they will lose. Under Tier 2, surviving spouses were guaranteed to receive the equivalent of the employee's final-year salary through a mix of the basic pension benefit, an annual cost-of-living adjustment, and Social Security. Tier 3 gives the survivors an annual payment of 50 percent of final salary plus an accidental death payment, which even coupled with Social Security, Mr. Garvey said, "may not be as generous as for current widows."

COLA Could Be Bonanza

The Tier 3 pension COLA, however, has the potential to be much more costly for the city than under Tier 2.

Tier 2 cops and firefighters, who can retire at any age after 20 years of service, do not receive their COLA until 10 years after they have retired, and must wait longer than that if they have not yet turned 55. Once they become eligible to collect, it is paid only on the first $18,000 of their basic pension allowance, and at only half the rate of the rise in the Consumer Price Index, with a cap of 3 percent.

Tier 3 recipients will have to work for 25 years to qualify for a COLA. If they do, however, they will be treated far more generously than their Tier 2 counterparts on a couple of counts. There is no waiting period for them to collect, meaning they could begin receiving it as early as 46. And they will also receive the COLA based on their full pension allowance and at the full rate of the CPI rise, although also with a 3-percent cap.

This means that if the CPI increased by 3 percent in a year, Tier 2 COLA recipients would get a 1.5 percent boost in their basic allowances, but those under Tier 3 would get the full 3 percent. Because those increases are compounded, it has been estimated that over the years many Tier 3 retirees are likely to wind up doubling their basic pension allowances because of the COLAs.